Discusses key economic indicators and trade statistics, which countries are dominant in the market, and other issues that affect trade.
Peru has been one of the fastest growing Latin American economies since 2002 and is known for its prudent fiscal policies. Structural reforms and sound macroeconomic policies created high growth, low inflation, and greatly reduced poverty rates from 52% in 2005 to 20.5% in 2020 (before the COVID-19 pandemic). Peru’s Gross Domestic Product (GDP) averaged six% growth from 2002 through 2013, then slowed to between 2.5 to 4%, and in 2020 decreased 11% due to the pandemic. Peru’s economy is now in recovery and many sectors are back to or approaching pre-pandemic levels. But the pandemic has laid bare Peru’s failure to provide sufficient public infrastructure in the education and healthcare sectors, among others. The International Monetary Fund (IMF) and the World Bank forecast 8.5 and 10.3% growth, respectively, in 2021, moderating to 5.2 and 3.9% in 2022.
Peru is well integrated in the global economy through its multiple free trade agreements, including the United States-Peru Trade Promotion Agreement (PTPA), which entered into force in February 2009. U.S. goods and services trade with Peru totaled an estimated $ 23.3 billion in 2020 up from $9.1 billion in 2009, the year the PTPA entered into force. Under the PTPA, U.S. consumer and industrial goods exports to Peru are no longer subject to tariffs. The PTPA eliminated tariffs on almost 90% of U.S. agricultural product exports, with remaining tariffs being phased out by 2026. Most imports (93% of codes) are also subject to an 18% value added tax (VAT), as are domestically produced goods. There are no quantitative import restrictions. The PTPA also established a secure, predictable legal framework for U.S. investors operating in Peru as well as intellectual property protections.
In 2020, almost 9,000 Peruvian companies imported products from the United States. The average annual growth of imports of U.S. products is 3.7% since 2009, mainly driven by the annual increase in imports of consumer goods (+ 6.8%) and intermediate goods (+ 5.9%). In 2020, the value of Peru’s imports from the United States was USD $ 6.3 billion, 26.9% less than that registered in 2019 due in large part to the impacts of COVID-19. The pandemic hit Peru especially hard with the country leading the world, at the time of this report, in cumulative per capita deaths. In response to the COVID-19 pandemic, Peru initially imposed strict business and workforce restrictions that dramatically restricted commerce. To counter this, the government is implementing economic stimulus packages of $ 27 billion.
Despite the economic impact of the COVID-19 pandemic and the political instability experienced toward the end of last year, Peru joined the select group of economies that issued hundred-year bonds in dollars with low interest rates, offering a clear sign of the global financial community’s confidence. Peru seeks to control inflation with a target range set by the Peruvian Central Reserve Bank (BCRP) (between 1% and 3%) and has kept single-digit annual inflation rates for the past 23 years. The country has, however, experienced an inflation spike with an annualized inflation rate that reached 4.2% in August 2021.
Peru’s government debt as a percentage of GDP was 34.7% in 2020. Its budget deficit was 8.9% of GDP with net international reserves of $74.7 billion. Inflation was 2% in 2020. The Central Bank of Peru estimate for 2020 FDI flow is $1.5 billion and $2.4 Billion for 2021. The dollar broke an historic high in July 2021, hitting 4.10 soles to the dollar. The Peruvian sol is the second most devalued currency in Latin America so far this year.
New Peruvian President Pedro Castillo took office in July 2021. Castillo won the election by a margin of less than half a percentage point in a nationally divisive campaign. His Peru Libre party and its allies do not have a majority in Congress. Thus, Congress’ relationship with the executive branch is predicted to be fraught. The Peru Libre party describes itself as being “a left-wing socialist organization” that embraces Marxism, Leninism and Mariáteguism. President Castillo, however, has said that he opposes communism, distancing himself from the far-leftists in his party. However, many associated trade and economic policies have yet to be announced and the local business community remains concerned about the potential negative impact on investment, operations, and the overall economy.